VeriFone Looks to the Future as the U.S. EMV Conversion Takes a Breather

VeriFone Systems Inc.’s North American revenues plunged 30% in the quarter ending Jan. 31 as small and mid-size businesses slowed purchases of VeriFone EMV chip card point-of-sale terminals. But Wall Street took it in stride, and company executives stressed new growth opportunities when they reviewed the leading U.S.-based terminal maker’s latest financial results Thursday.

In fact, San Jose, Calif.-based VeriFone’s stock rose in after-hours trading late Thursday despite the company reporting a 12% decline in total revenues, to $453.9 million for fiscal 2017’s first quarter from $513.5 million a year earlier, and a loss of $16.6 million versus net income of $23.5 million. North American revenues slipped to $165.9 million from $235.7 million in a strong first quarter of fiscal 2016. Still, the results exceeded the company’s top- and bottom-line predictions, and revenues per share, adjusted for one-time items, met analysts’ expectations. (In Friday morning trading, Verifone’s stock was off about 5% from Thursday’s close.)

One of the opportunities chief executive Paul Galant announced was a new portal for third-party software developers to create applications that run on VeriFone platforms. He also said VeriFone will place its fuel-pump media business in a joint venture with Detroit-based Destination Media Inc.’s Gas Station TV.

Neither Galant nor chief financial officer Marc Rothman, who also was on the conference call, mentioned the data breach reported this week involving VeriFone equipment at about 24 convenience stores, and no analysts asked about it.

After enjoying a string of powerhouse quarters as large U.S. merchants and merchant acquirers placed huge orders to replace magnetic-stripe terminals with new EMV chip card readers, VeriFone as well as its arch-rival Ingenico Group last year began reporting weakening sales caused in large part by smaller merchants delaying their EMV upgrades. The situation worsened a few months ago when Visa Inc. and Mastercard Inc. postponed their EMV liability shifts for gasoline pumps, a big market for VeriFone, from October 2017 to October 2020.

Merchant acquirers serving small and mid-size U.S. merchants are sitting on three to four months of inventory, according to Rothman. He predicted sales to that market will be “flattish” in the second quarter before picking up in the third and fourth quarters. Despite the lull, Galant estimated that the EMV conversion still has 5 million devices to go, either through upgrades or replacements of old terminals and the addition of new merchants that currently don’t accept credit and debit cards.

But Galant wants to position VeriFone as a provider of software and services rather than just POS terminals. As part of that, VeriFone is going to play in the growing market for third-party apps that enable payment-services providers to offer business-management programs to merchants as well as payment processing.

“We will soon be launching a VeriFone third-party developer portal in the U.S.,” said Galant. “We have already assembled a strong pipeline of third-party developers looking to build commerce and payment applications for our clients on our platforms.”

Meanwhile, the company has four new families of devices just beginning to hit the market, including Engage, Carbon, and the M series of mobile devices, as well as a line of lower-end terminals. While VeriFone expects added growth from terminals that support more software-based services, the new joint venture with Gas Station TV represents a scaling back of its longstanding business of providing media services for fuel pumps.

“Those areas were not core to VeriFone,” said Galant. “To be really successful in media you’ve got to be night-and-day focused on it.”

The combination of VeriFone’s with Gas Station TV’s network will create one with 100,000 screens, he said. Terms of the pending joint venture, which is expected to close later this month, haven’t been announced, but VeriFone will generate revenues from it, according to Galant.